What would people say if a large private-sector company run by a high-profile executive were to announce it was going into administration, dump its pension liabilities on an industry compensation fund and then start up an almost identical business in order to carry on as normal? There would be widespread anger – yet this appears to be exactly what Boris Johnson, the Mayor of London, has just done.
Until 1 April, London tourism was promoted by an organisation called Visit London, a quango sponsored by the Greater London Authority. Then Mr Johnson's office intervened, placing Visit London into administration. The body's final salary pension scheme, which is more than £2m in deficit, is to be transferred to the Pension Protection Fund, the lifeboat fund financed by a levy on all private-sector employers with such plans and set up to protect workers whose employers go under leaving a shortfall.
Fair enough – this is what the PPF is for. But here's the rub. A new quango, London & Partners, is to take on Visit London's tourism duties – as well as 39 of its former staff and the grant it used to receive from the London Development Authority. And that looks to be a pretty flagrant breach of the law that specifically prevents private companies dumping pension liabilities on the PPF and then relaunching as a debt-free business engaged in the same line of work.
The Pensions Regulator is now investigating the matter, but it is far from clear how the law might apply to a quasi public-sector body such as Visit London. While the watchdog would be likely to come down like a ton of bricks on this sort of behaviour in the private sector, its remit has never been tested in this way before. Let's hope it proves equal to the task. For if the GLA gets away with this trick, the Government is certain be tempted to seek to follow its lead as it shuts down other quangos as part of its austerity measures. New bodies – or the state – will take on their work, but will want to avoid accepting pension liabilities if at all possible.
This is not a victimless con-trick. For one thing, Visit London pension-scheme members who have not already begun drawing their pensions will probably now see their benefits reduced by 10 per cent. Also, the employers funding the PPF will now face a higher bill than expected.
It's a shoddy way to do business. We would not accept this from a privately owned business and we certainly should not do so either in the public sector.
Osborne's big day
Here we go then. The rest of the country may be looking forward to Friday's royal wedding, but the day for which George Osborne has been waiting most impatiently will dawn 48 hours earlier. Tomorrow sees the release of the first estimate of the economy's performance in the first quarter of 2011. Finally, the Chancellor should be able to say Britain's economy is growing again, following the horror story of the 0.5 per cent contraction seen during the final three months of 2010.
Mr Osborne badly needs a decent number. His prioritisation of deficit reduction may continue to attract the support of the debt hawks at the IMF and the OECD, but the clamour for a Plan B has been getting noisier by the day since that return to negative growth was first announced. Plan A only works if the economy is growing at the rates on which the Chancellor has based his debt-repayment schedules.
However, even a strong return to growth should not be taken as an affirmation of Mr Osborne's strategy. For one thing, since much of the contraction at the end of last year was due to those weeks of wintry weather, there should have been a bounce simply from the catch-up in January once the snow melted. For another, the worst of Mr Osborne's tax rises and spending cuts only came into effect with the beginning of the new financial year, six days after the first quarter ended.
In fact, all the evidence of recent weeks has been that underlying growth remains, at best, flat. Consumer spending has been disappointing, construction seems to have gone into reverse and even the resurgence of the manufacturing sector appears to have been slowed. Official data has been better than one might have expected on the basis of the monthly purchasing managers' surveys, but is still pedestrian.
The jury, in other words, remains out. Every forecaster, from the Office of Budgetary Responsibility onwards, has been cutting estimates of growth this year and next. The success or failure of the Chancellor's strategy remains finely balanced.
Look at what the markets think. As recently as February, bond yields suggested that traders believed May was a nailed-on certainty as the month in which the Bank of England would finally raise interest rates. Now the betting has shifted to November. Many do not expect the Bank's Monetary Policy Committee to feel confident enough about the economy to go for a rate rise until the first quarter of 2012.
The ancient Greek art of distraction
Greek fury about market rumours that it would announce a default on its debts over the Easter weekend will be enhanced by the fact that the gossip proved unfounded. Greece's Prime Minister has launched a vituperative attack on the credit-rating agencies – no doubt emboldened by the Standard & Poor's warning about the US – while its law-enforcement officials are promising to prosecute the rumour-mongers.
But these public shows of outrage are an exercise in the art of distraction. The expectation of a Greek default – sooner or later – is not based on some malevolent desire to do the country down, but on some hard figures. Like its debts being on target to hit 160 per cent of GDP next year, for example. Or that its economy will shrink by more than 3 per cent this year.
Then there is Greece's track record of opacity. For years, official statistics willfully underestimated the travails of its economy and the Greek government publicly denied it needed a bailout until the final moments before begging for help a year ago.
Greece may have avoided a default this Easter. But don't let its self-righteous indignation blind you to the fact it will almost certainly have been forced to restructure its debts before the Easter bunny returns in 12 months' time.Reuse content